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Euro area inflation rebounds from 4-year low

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Euro area inflation rebounds from 4-year low

Consumer inflation in the euro area rebounded in November, after last month’s four-year low threatened the foundations of the region’s recovery.

The Eurozone consumer price index expanded at an annualized rate of 0.9 percent in November, exceeding the median estimate of economists by 0.1 percentage point. Core CPI, which tracks price changes of goods and services excluding volatile components such as food and energy, rose 1 percent, beating estimates by 0.2 percentage points.

The rise in CPI eased pressure on the European Central Bank, which is considering negative deposit rates to bring inflation back up toward target levels. The ECB cut its benchmark lending rate in half in November in a last ditch effort to stimulate borrowing. The improvement to CPI, while only marginal, diffused speculation about negative deposit rates for the time beating.

“We saw that big leap lower in CPI last month, which opened up the whole deflation fear,” said Gavin Friend of London’s National Australia Bank Ltd.

Eurozone recovery grinded to a near-stop in the third quarter after the 17-nation currency region expanded a mere 0.1 percent. The region’s second and third largest member-states, France and Italy, each declined 0.1 percent over the previous quarter. European powerhouse Germany had its growth slashed from 0.7 percent to 0.3 percent due to a weak export market in the euro region.

While the ECB can breathe easy for the time being, deflationary pressures are still present in the Eurozone economy. Unemployment continues to be a serious issue, one that could threaten the fabric of regional recovery. Eurozone unemployment eased from its record high in November, although a clear and widening divide still persists between the north and south. Youth unemployment hit a record high of 24.4 percent in November, a strong warning sign for the region.

The euro was unable to use CPI to extend its rally on the US dollar, falling 20 pips to 1.3582. The common currency was little changed against the Japanese yen, trading at 1.3912 in North America.

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